Marico share price rallies over 9% as Q2 numbers beat estimates. Should you buy?

Shares of Marico, a leading player in India's consumer products sector focusing on hair and wellness, jumped 9.2% to ₹687 apiece in early morning trade on Tuesday, October 30 after the company posted a healthy set of numbers for the September quarter (Q2 FY25), beating analysts' estimates.

For Q2FY25, Marico reported a net profit of ₹423 crore, a 20% rise from the net profit of ₹353 crore recorded in the same quarter last year. This rise in profitability was largely driven by price increases implemented to counteract rising raw material costs.

The consolidated revenue from operations surged to ₹2,664 crore, which is an 8% improvement as compared to a revenue of ₹2,476 crore in Q2 FY24. Domestic revenue was at ₹1,979 crore, reflecting an 8% YoY rise as volume growth was supplemented by price hikes in the Coconut Oil portfolio and a favourable reversal in the pricing cycle in Saffola Oils.

In the first half of FY25, Marico's revenue reached ₹5,307 crore, representing a 7% increase compared to ₹4,953 crore in H1FY24. The company anticipates consolidated revenue growth to reach double digits in the second half of the fiscal year. 

Marico noted stable demand trends in India, with rural markets growing at twice the pace of urban markets year on year. In recent quarters, Marico has experienced price-led growth rather than volume-led growth.

"Pricing growth for the sector turned positive on a year-on-year basis as brands implemented price increases in response to rising commodity prices," the company stated.

In Q2FY25, Marico reported a 5% YoY domestic volume growth and a constant currency growth of 13% in its international business. Sales volumes of "Parachute" coconut oil—its largest segment by domestic revenue—increased by 4%, leading to a 10% revenue growth. Conversely, sales volumes for the "Saffola" brand of edible oils remained flat year-on-year, though revenue grew by 2% due to price hikes. 

With improving macroeconomic indicators, Marico anticipates a gradual increase in growth for its core categories in the domestic market, driven by ongoing initiatives aimed at enhancing the profitability of general trade channel partners and transformative expansion efforts under Project SETU.

Following the company's Q2 results, Japanese brokerage firm Nomura reaffirmed its 'buy' rating on Marico's stock with a target price of ₹760 per share. The quarterly performance was consistent with the pre-quarterly update, indicating an improvement in demand.

Notably, Marico's focus on both premium and mass market segments mitigated any negative effects from urban market weaknesses, while significant price hikes have bolstered the company's growth outlook, said the brokerage.

Stock price trend

After remaining in a sideways trend for nearly six months, Marico's stock made a notable comeback in April this year, continuing its upward trajectory and achieving a gain of 33% to date. 

Looking at the long-term performance, the stock has delivered steady returns over the past decade, ending only one calendar year in the red while finishing the others in positive territory.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.